NZ services sector activity falls for a second month in January

Monday 15th February 2016

New Zealand's services sector, which accounts for about two-thirds of the economy, slowed in January, with retail trade dropping.

The BNZ-BusinessNZ performance of services index dropped 3.1 points to a seasonally adjusted 55.4 last month, the lowest level since November 2014, and the second consecutive fall. However, all of the five sub-indices remained above the 50 reading that separates contraction from expansion.

"It’s difficult to know if this is anything more than the usual monthly bounce-around," said Bank of New Zealand senior economist Craig Ebert. "Still, the slowing is worth pointing out."

An obvious deceleration came through retail trade, Ebert said, with its unadjusted index for January at 49.5, compared to 62.8 a year earlier. Still, it was "hard to believe retail spending is going flat," after January's electronic card transactions released last week expanded 0.6 percent, led by hospitality and durables.

"In support of ongoing retail spending expansion are high net immigration, booming tourism, consumer confidence, construction, low inflation and a robust labour market," Ebert said.

The PSI comes after its sister survey, the performance of manufacturing index, rose to a 15-month high in January, with an uptick in production and employment pointing to further improvements ahead. The performance of composite index, which combines the two measures, fell 2.3 points to 56.0 on the GDP-weighted basis, and dipped 0.5 of a point to 57.5 on a free-weighted basis.

Decreased activity/sales and new orders/business slowed expansion in the services sector last month. Activity/sales fell 3.7 points to 58, and new orders/business dropped 6.8 points to 57. Employment recorded a reading of 50.9, down from 53.4, and stocks/inventories slipped to 55, from 55.2. Supplier deliveries was the only sub-index to accelerate expansion, up 0.6 of a point to a reading of 55.8.

BNZ's Ebert said while four indices had slowed, activity and new orders were still "clearly expansive."

"Put with the relatively better PMI of 57.9, January’s PSI remains enough to suggest annual GDP growth running in the range of 3 to 4 percent," he said. "We figure on something closer to 2.5 percent."

Government data this week will show the retail trade on Tuesday.

BusinessDesk.co.nz

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